Correlation Between Seadrill and Western Energy

Can any of the company-specific risk be diversified away by investing in both Seadrill and Western Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Seadrill and Western Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Seadrill Limited and Western Energy Services, you can compare the effects of market volatilities on Seadrill and Western Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Seadrill with a short position of Western Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Western Energy.

Diversification Opportunities for Seadrill and Western Energy

-0.17

Correlation Coefficient

Seadrill  Western Energy

Good diversification

The 3 months correlation between Seadrill and Western is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Western Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Energy Services and Seadrill is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Seadrill Limited are associated (or correlated) with Western Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Energy Services has no effect on the direction of Seadrill i.e., Seadrill and Western Energy go up and down completely randomly.

Pair Corralation between Seadrill and Western Energy

Given the investment horizon of 90 days Seadrill Limited is expected to generate 1.45 times more return on investment than Western Energy. However, Seadrill is 1.45 times more volatile than Western Energy Services. It trades about 0.02 of its potential returns per unit of risk. Western Energy Services is currently generating about 0.01 per unit of risk. If you would invest  3,974  in Seadrill Limited on September 4, 2024 and sell it today you would earn a total of  19.00  from holding Seadrill Limited or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Seadrill Limited  vs.  Western Energy Services

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Western Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Seadrill and Western Energy

The main advantage of trading using opposite Seadrill and Western Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seadrill position performs unexpectedly, Western Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Western Energy will offset losses from the drop in Western Energy's long position.

The idea behind Seadrill Limited and Western Energy Services pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.